November 4, 2024 will bring higher allowable renovation amounts, extended project timelines, updated repair criteria, and more, to the FHA 203(k) loan program.

If you’re considering buying or refinancing a fixer-upper, the upcoming changes to the FHA 203(k) loan program are set to make this financing option more flexible than ever before.

What is the FHA 203(k) Loan Program?

An FHA 203(k) loan is a loan program backed by the Federal Housing Administration (FHA) that allows homebuyers to bundle the costs of repairs, improvements, or upgrades into a single loan. This means you can purchase or refinance a home while simultaneously financing the necessary renovations. 

Whether you’re looking to tackle structural repairs like new roofs or foundations, modernize kitchens and bathrooms, or enhance energy efficiency, a 203(k) loan has you covered. 

A portion of the loan goes towards acquiring the home or paying off an existing mortgage, while the remainder is placed in an escrow account for rehabilitation costs as the work is completed.

Standard and Limited 203(k) Loans

The FHA offers two versions of the 203(k) loan program:

Standard 203(k): Designed for substantial remodeling and major repairs.

Limited 203(k): Intended for minor renovations and nonstructural repairs.

Upcoming Changes to 203(k) Loan Program, Effective November 4, 2024

1. Higher Renovation Costs

The maximum rehabilitation cost for the Limited Program has increased from $35,000 to $75,000, with plans for annual reviews. 

2. Consultant’s Fee Inclusion

Borrowers can now include the fee for an approved Consultant in the mortgage amount under the Limited Program, aligning it with the Standard Program.

3. Extended Timelines

The rehabilitation period for the Standard Program has been extended from six to twelve months, while the Limited Program now allows for nine months instead of six. 

4. Mortgage Payment Reserve

The Standard Program now permits a mortgage payment reserve covering up to twelve months while the home is uninhabitable due to renovations. 

5. Updated Repair Criteria

The definition of a "major" repair in the Limited Program has been revised. Previously, a repair that rendered a home unlivable for more than 15 days was classified as major; this threshold has now been increased to 30 days, allowing for more flexibility with smaller projects.

6. Revised Consultant Fees

Consultants’ maximum fees have been adjusted, along with other related changes. FHA 203(k) Consultants now have a two-year approval validity and specific selection criteria for those involved in the Limited Program.

Closing Thoughts

With higher allowable renovation amounts and extended timelines, the 203(k) loan program is becoming increasingly flexible and attractive for homebuyers looking to invest in fixer-uppers. 

If you’re ready to turn that dream home into a reality, give us a call or visit us online to determine if a 203(k) loan is the right fit for you.